The US and Korea have recently reached an agreement on certain revisions of the Korea – U.S. Free Trade Agreement, known as KORUS. The Ministry of Trade, Industry and Energy submitted an analysis of the 2012-effective KORUS FTA to a National Assembly this past March, 2018. The assessment was conclusive to the requirements set into place in it’s conception in 2012, to evaluate FTAs every five years.
Overview – Benefits of the KORUS FTA for the U.S.
- Bilateral trade between Korea and the U.S. increased 12% in 2016 compared to 2011, while global trade decreased 12% in the same period.
- The U.S. market share in Korea surged since the KORUS FTA from 8.5% in 2011 to 10.6% in 2016 and stayed there at 2017, with growing exports of beef, cheese and Orange.
Service – Positive Effects of the KORUS FTA on Service
- The U.S. services surplus with Korea reached a record $10.7 billion in 2016.
- The U.S. overall trade deficit with Korea, goods and services combined, decreases by 36.8% from $27.7 billion to $17 billion in 2016.
- * 36.8% is the largest such decrease among the U.S.’s top 10 trade deficit nations.
- Thanks to strong protection of IPR under KORUS FTA, U.S. exports to Korea of IPRs, such as patent and trademark rights, increased by 29.3% from $4.5 billion in 2011 to $5.9 billion in 2016.
Investment –KORUS Boosts Investment from Korea:
- 5th fastest-growing source of foreign direct investment (FDI) in the U.S.
- +17.3% Annual growth in Korean FDI from 2010-2015
- 14th largest source of FDI globally
- +94% Korea’s aggregate FDI in the US since 2011
- $5 billion more Korean investment in the U.S. than American investment into Korea
- Korea’s foreign direct investment into the U.S. climbed 1.7 times.
- Korea has become the 10thlargest investor in the U.S. economy – exported goods “manufactured in the U.S.A” amounting to $24.8B in 2014, 4thlargest after Japan, the U.K., and Germany
- Korean-invested firms created a total of 413, 642 jobs in the US as of 2016, of which some 51,900 jobs have been supported by FDI from Korean firms.
- Korean-invested firms contribute to the goal of “Hire American” with the highest compensation among all Asian-investment firms in the US.
A Surge in South Korea – US Auto Trade
- The U.S. market share in Korea has soared under the KORUS FTA from 11.6% (2011) to 19.7% (2016), which is No.2 after Germany
- The U.S. share in the imported car market of Korea has surpassed Japan’s, and the gap is continuously expanding.
- Korea’s car market is 2.7 times smaller than Japan’s. – However, Korea’s car imports from the U.S. are 2.4 times higher than Japan’s.
- S. car exports to Korea have benefited under the KORUS FTA.
- S. exports to Korea have increased by 3.6 times since 2011, while Korean exports to the U.S. have increased by 1.8 times.
- S. exports to Korea have continued to increase. However, Korean exports to the U.S. have recently declined, even after the U.S. tariffs were reduced to zero.
|Growth Rate of US Auto Export by Destination: 2001 vs 2017|
* Data provided by the United States International Trade Commission
High Potential for US Auto Industry in Korea
- KORUS FTA to improve auto trade imbalances between U.S. & Korea
- Since the FTA took effect in 2012, U.S. auto imports continued to increase by 35.8%(on average) annually
- Exports of Korean auto decreased by 10.9% despite elimination of tariffs in 2016
- Auto-trade surplus: 2015 $16.3 bill 2016 $13.9 bill (down 2.4bill)
- High potential for U.S. automobiles in Korea
- Korean market for imported cars has been showing fast upward growth
- In 2016, U.S. automobile imports have increased by 22.4%, while the total number of imports of foreign cars decreased by 8.3%
Auto Benefits from March Revisions
- Recent revisions have provided improvements to the KORUS FTA agreement that will protect jobs in America’s auto industry and increase U.S. exports.
- As a result of negotiations, South Korea will double the annual number of American automobiles – from 25,000 to 50,000 per manufacturer per year – that can enter its market using U.S. safety standards.
- South Korea is simplifying the sales environment for U.S. cars and parts by taking into account U.S. environmental and emissions standards.
- American vehicles will be able to meet South Korean emissions standards based on U.S. emissions tests, avoiding additional or duplicative testing.
- South Korea will recognize U.S. standards for auto parts necessary to service U.S. vehicles, and will reduce labeling burdens for auto parts.
- South Korea will expand the number of “eco-credits” available for U.S. automakers to meet South Korean emissions standards.
- When setting fuel economy standards in the future, South Korea will take U.S. corporate average fuel economy regulations into account and will continue to include more lenient standards for smaller volume exporters.
- South Korea will extend the phase out of the 25 percent U.S. tariff on trucks until 2041, well beyond the current phase out date of 2021.
Pharmaceuticals and Customs Benefits with March Revisions
- South Korea has agreed to address issues with onerous and costly customs procedures that have hindered U.S. exports.
- South Korea has agreed to change its pharmaceutical reimbursement policy for innovative drugs to give fair treatment for U.S. exports by the end of this year, consistent with its KORUS obligations.